Libertarian paternalism Notes for April 16

Main points

We discussed Cass Sunstein and Richard Thaler’s idea of libertarian paternalism. This is interesting for at least two reasons.

It is a kind of paternalism that is very hard to object to. At least, it is very hard to imagine an objection coming from the targets of paternalistic intervention.

It touches on some of the regulatory areas of the law that are rarely discussed in classes like this one.

Our discussion of the cases was fairly thorough. I will concentrate here on the points I meant to make at the end.

Two theses

The most interesting thesis in the article is that some sort of influence on people’s decision making is inevitable. Libertarian paternalists interfere with people’s decision making in ways that would occur anyway. The only difference is that libertarian paternalists interfere for the benefit of the people who are interfered with.

If that is so, there is little point in objecting that libertarian paternalism on the grounds that it involves interference. You aren’t going to be free of framing effects, anchor effects, and all the rest even if there is no libertarian paternalism. You will still be subject to those influences, but you’ll be worse off to boot.

The less interesting thesis is that interference with decisions can be rendered compatible with libertarianism by allowing people to opt out. That may well be true, but we don’t need a big law review article to make the point. A paragraph would do the trick.

Of course, when you combine the two points, you get a double barreled defense of a bunch of do-gooder government intervention against the charge that it objectionably interferes with liberty or treats people as children.

This is surely why it’s a critical, but very poorly understood, part of Barack Obama’s plan for universal health care.

Politics, paternalism, and health care

Allow me to explain. Health insurance costs a lot because healthy people don't buy enough of it. Insurance generally needs a lot of "losers" to pay for the "winners", with "losers" being those who don't have huge health expenses, car accidents, fires, etc. and "winners" being those who do. The losers pay a small amount in premiums and the winners use their "winnings" to recover from the catastrophe that befell them.

Anyway, the cost of insurance creates an unpleasant cycle: as costs go up, more people opt out, driving costs up even further, and more out, etc. Hillary Clinton plans to cut this cycle through an individual mandate. Everyone has to buy health insurance, expanding the market, and driving the costs for individual insurance policies down.

You can already hear the ads.

Obama, by contrast, plans to use a libertarian paternalist mechanism to sign everyone up while allowing them to opt out. There's more to it than that, but the gist is that Obama plans to use the ideas in the Sunstein and Thaler paper to do the work of the individual mandate in driving down the cost of insurance while avoiding the charge that he's forcing government health care on everyone. He’s relying on anchor effects: people will tend to stick with the default, even if they could opt out, especially if it’s better for them.

Clever or too clever by half? I guess we’ll find out if we can ever get beyond flag pins and other burning issues of the day.

What’s your political philosophy?

I think that a significant weakness of the article is that its definition of “libertarianism” is so cursory. Basically, they take libertarianism to be the view that individual liberty is very good for individuals. It’s as if libertarians had adopted John Stuart Mill’s views from On Liberty, perhaps without the attempt to squeeze them into utilitarianism.

But there are other reasons for being a libertarian. For instance, you might think that there are sharp limits to what the government is permitted to do. My neighbor isn’t allowed to interfere with me, even if he could run my life better. It’s not his business. Similarly, many libertarians think that promoting individual well-being just isn’t the government’s business. Others are motivated by a fear of allowing government to have too much power. They might not have anything against paternalism per se but object to giving the government the power to go beyond a narrow range of permitted activities.

It seems to me that Fowler touched on both of these positions, for instance. I don’t see any reason why he would have to concede that Sunstein and Thaler’s position qualifies as “libertarian”. It all depends on why you are a libertarian.

What’s the lesson? Your political philosophy, that is, your view of the purpose of the state, matters.

Government vs. private interests

Since my political philosophy is not libertarian, allow me to push back a bit. It’s true that the state can be frighteningly powerful. But private interests can be pretty powerful too. And they aren’t above manipulating our decision making. Those of us who aren’t libertarians believe that the political process can give the public interest weight against private economic interests.

To illustrate the power and danger of private interests, consider how SUVs are sold.

According to market research conducted by the country's leading automakers, Bradsher reports, SUV buyers tend to be "insecure and vain. They are frequently nervous about their marriages and uncomfortable about parenthood. They often lack confidence in their driving skills. Above all, they are apt to be self-centered and self-absorbed, with little interest in their neighbors and communities. They are more restless, more sybaritic, and less social than most Americans are. They tend to like fine restaurants a lot more than off-road driving, seldom go to church and have limited interest in doing volunteer work to help others."

He says, too, that SUV drivers generally don't care about anyone else's kids but their own, are very concerned with how other people see them rather than with what's practical, and they tend to want to control or have control over the people around them. David Bostwick, Chrysler's market research director, tells Bradsher, "If you have a sport utility, you can have the smoked windows, put the children in the back and pretend you're still single."

Armed with such research, automakers have, over the past decade, ramped up their SUV designs to appeal even more to the "reptilian" instincts of the many Americans who are attracted to SUVs not because of their perceived safety, but for their obvious aggressiveness. Automakers have intentionally designed the latest models to resemble ferocious animals. The Dodge Durango, for instance, was built to resemble a savage jungle cat, with vertical bars across the grille to represent teeth and big jaw-like fenders. Bradsher quotes a former Ford market researcher who says the SUV craze is "about not letting anything get in your way, and at the extreme, about intimidating others to get out of your way."

… In their attempt to appear youthful and hip, SUV owners have filled the American highways with vehicles that exact a distinctly human cost, frequently killing innocent drivers who would have survived a collision with a lesser vehicle. Bradsher quotes auto execs who concede that the self-centered lifestyle of SUV buyers is apparent in "their willingness to endanger other motorists so as to achieve small improvements in their personal safety."** Source: Stephanie Mencimer, “Bumper Mentality: A review of Keith Bradsher's High and Mighty,” The Washington Monthly (December 2002).

In other words, the car companies developed a profile of a kind of person who would respond to an expensive, dangerous car and proceeded to sell millions of them to people who thought they were motivated by safety. Only the people who were manipulated aren’t the only victims. Those include everyone who has to share the road with them.

Ideally, the state would regulate automobiles to ensure their safety and limit their environmental impact. Then marketing departments could exploit consumers’ quirks without doing too much harm. But, of course, that didn’t happen during either the Clinton or Bush administrations. What was good for GM was also good for the UAW and so ….